CME's Crypto Partners Get Called Out by New York Regulators

(Bloomberg) -- Three of the cryptocurrency exchanges that help power CME Group Inc.’s Bitcoin futures market have raised red flags with New York state regulators.

Two of them, Bitstamp and itBit, have no formal policies for fighting market manipulation, according to report issued Tuesday by New York Attorney General Barbara Underwood. A third -- Kraken, which refused to participate in the attorney general’s review -- has made “alarming” public comments about abusive trading, including that manipulation “doesn’t matter to most crypto traders” even though “scams are rampant.”

This matters because it raises the possibility that CME’s futures are based on a price that’s being batted around by cheaters. CME’s contracts are valued partly by how much Bitcoin costs on cryptocurrency exchanges run by other companies.

CME didn’t immediately have a comment.

CME and another exchange, Cboe Global Markets Inc., both introduced Bitcoin futures in December. Neither has gained much traction, with only a few thousand contracts currently issued by the exchanges. CME also works with the Coinbase exchange, which the New York report said has a formal market manipulation policy. Cboe partners with Gemini, which does too, according to the attorney general.

U.S. government regulators have also lamented a lack of policing for manipulation in cryptocurrency markets. When the Securities and Exchange Commission recently rejected a request to create an exchange-traded fund that invests in Bitcoin, it cited the possibility that prices are being gamed.

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